CDW 2012 Annual Report Download - page 118

Table of Contents
Elements of Compensation
The Company's 2012 executive compensation program consisted of the following principal elements:
Base Salary
The Committee generally sets base salaries for executives, including the Named Executive Officers, below the market median of
salaries for executives in similar positions and with similar responsibilities at companies included in the market data. Aligned with our
compensation philosophy, a large proportion of executives' total target cash compensation is non-fixed, or variable, to provide a strong
connection between pay and performance. Accordingly, in 2012, the base salaries for Mr. Richards and Mr. Edwardson were 40% of each of
their respective total target cash compensation levels, and the base salaries for the other Named Executive Officers ranged from 31% to 50% of
their total target cash compensation.
For 2012, the Committee did not increase the base salary levels from those set for 2011 for the Named Executive Officers. In
accordance with the terms of Mr. Edwardson's employment agreement, Mr. Edwardson's base salary was reduced over the course of 2012 in
connection with his eventual retirement from the Company. For the base salaries paid to the Named Executive Officers during 2012, see the
“2012 Summary Compensation Table” and for a description of Mr. Edwardson's base salary, see “Narrative to Summary Compensation Table
and Grants of Plan-Based Awards Table.”
Annual Cash Incentive Awards (Senior Management Incentive Plan)
CDW provides its senior management with short-term incentive compensation through its annual cash bonus program, the Senior
Management Incentive Plan (“SMIP”). Short-term compensation under SMIP is a significant component of an executive's total target cash
compensation opportunity in a given year.
The total target cash compensation opportunity for an executive is generally set so that target compensation varies above or below
market median rates based on whether the Company outperforms or underperforms market growth rate expectations. Because the Named
Executive Officer base salary levels historically have been below the median market rate, the Committee uses an above-median target SMIP
opportunity to bring targeted total cash compensation within the median range. For 2012, the Committee did not increase the SMIP target award
levels from those set for 2011 for the Named Executive Officers. For 2012, Mr. Richards and Mr. Edwardson's SMIP target awards represented
60% of their respective total target cash compensation levels, and the SMIP target awards for our other Named Executive Officers ranged from
50% to 69% of their respective total target cash compensation.
In establishing annual performance goals under SMIP, the Committee undertakes a rigorous review and analysis to establish
performance goals that correlate to above market performance, as measured by industry surveys and financial information from publicly traded
resellers and publicly traded technology distributors and/or manufacturers. Factors considered by the Committee in establishing the performance
goals include market growth rate expectations and Company market share gain expectations, as well as assumptions regarding the Company's
productivity gains and investments.
The Committee believed that a combination of Adjusted EBITDA and market share performance was the most meaningful measure of
the Company's 2012 performance for its stakeholders because together they take into account not only the Company's absolute performance but
also performance relative to the market. Adjusted EBITDA is a non-GAAP financial measure. See “Management's Discussion and Analysis of
Financial Condition and Results of Operations”
for further information regarding the calculation of Adjusted EBITDA as well as a reconciliation
of Adjusted EBITDA to net income.
For 2012, the Committee determined that no SMIP payments would be provided unless annual Adjusted EBITDA met or exceeded
2011 actual Adjusted EBITDA and set the annual Adjusted EBITDA performance goal at $781.8 million, which represented a 9% increase over
2011 actual Adjusted EBITDA. Consistent with the 2011 SMIP design, the Committee also included a market share factor as a mechanism to
adjust payments under SMIP. In operation, therefore, payment of awards under SMIP for performance during 2012 was guided by three
principles:
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Base salary;
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Annual cash incentive awards (the Senior Management Incentive Plan); and
• Long-
term incentive awards.
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Target payout requires growth above market growth rate expectations;
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Threshold payout requires performance at or above prior year level; and
•
The market share governor reduces payouts if the Company loses market share.